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Frankfurt am Main, June 27, 2018 -- Moody's Investors Service has today upgraded the senior unsecured debt
ratings of DEPFA BANK plc (DEPFA) to A2 from Baa2. Concurrently,
the rating agency upgraded the long-term deposit ratings of DEPFA
and its wholly owned subsidiary DEPFA ACS BANK DAC (DEPFA ACS) to A2 from
Baa2 and the banks' short-term deposit ratings to P-1
from P-2. Furthermore, Moody's upgraded the
banks' Baseline Credit Assessments (BCA) and Adjusted BCAs to baa3
from ba3, and also upgraded both banks' Counterparty Risk
Assessments (CR Assessments) to A2(cr)/P-1(cr) from Baa2(cr)/P-2(cr).
The outlook on the long-term ratings has been changed to Positive
from Ratings under Review. Finally, Moody's assigned
first-time A2/P-1 Counterparty Risk Ratings to DEPFA and
DEPFA ACS.

Today's rating actions conclude Moody's review for upgrade initiated on
23 March 2018, which confirmed DEPFA's substantial progress
in its wind-down process, in particular following a second
asset-liability transaction executed with DEPFA's German
government-owned parent FMS Wertmanagement (FMS-WM,
senior unsecured Aaa stable) in late 2017. This transaction,
combined with further maturities and disposals, have significantly
improved capitalisation and leverage, providing comfortable loss
absorption buffers against the background of the continued unwinding of
DEPFA's portfolios.

The upgrade of DEPFA's debt and deposit ratings, as well as DEPFA
ACS' deposit ratings, reflects the upgrade of their BCAs by three
notches to baa3. In particular, this is due to a combination
of DEPFA's:

(1) Further significant progress in unwinding the group's balance sheet
and risk-weighted assets, as illustrated by the decrease
of total assets by 49% to €18.6 billion during 2016
and 2017, and the 70% decrease of risk-weighted assets
during the same period;

(2) The resulting improvement of DEPFA's regulatory capital adequacy ratios
and leverage. DEPFA reported a fully-loaded common equity
Tier 1 ratio of 78.7% as of December 2017, up 59 percentage
points since December 2015, and a leverage ratio (tangible common
equity to Moody's adjusted total assets) of 9.8% as
of December 2017, compared to 3.3% as of December
2015;

(3) Efforts to contain operating losses. During 2017, DEPFA
generated a Moody's adjusted pre-tax profit (which excludes
gains on sale) of €33 million compared to a pre-tax loss of
€83 million in 2016. While some of the profitability improvements
during 2017 were of a non-recurring nature and Moody's expects
DEPFA to remain structurally lossmaking over the next few years,
the positive operating result in 2017 helped the group to continue the
unwinding of its balance sheet in a capital-preserving fashion.

The BCAs also take into account DEPFA's mono-line, highly
concentrated asset profile that weighs on the ratings, as well as
the funding and liquidity framework in place between DEPFA and FMS-WM,
which provides several committed funding lines to DEPFA that are contractually
agreed until 2025.

DEPFA ACS's rating inputs and ratings remain aligned with those
of its parent, DEPFA, as Moody's considers the subsidiary
to be a Highly Integrated and Harmonized (HIH) entity, as described
in Moody's Banks methodology. The HIH status reflects the
full operational integration of DEPFA ACS into DEPFA as a covered bond
funding vehicle.

UNCHANGED VERY HIGH GOVERNMENT SUPPORT ASSUMPTION

DEPFA group's ratings continue to incorporate Moody's assumption
of a Very High level of government support, which takes into account
Moody's assessment of FMS-WM's ongoing, strongly supportive
assistance in the group's unwinding, which aims at avoiding distress
and ensuring a smooth run-down of DEPFA's assets and liabilities.
This assistance is illustrated by FMS-WM's direct funding support,
as well as its systematic purchase of DEPFA group's liabilities in order
to facilitate an accelerated run-down.

In deriving the group's ratings, Moody's does not apply
the rating agency's Advanced Loss-Given-Failure (LGF)
analysis, because of the high share of liabilities being owned by
FMS-WM and DEPFA effectively being in liquidation, which
makes it unlikely that resolution measures, such as bail-in,
would be applied to DEPFA. Instead Moody's applies the Basic
LGF approach, which provides zero notches of rating uplift for senior
debt and deposits, and one notch of rating uplift for the CR Assessment.
The senior debt and deposit ratings thus incorporate four notches of government
support, while the CR Assessment incorporates three notches.

RATIONALE FOR THE POSITIVE OUTLOOK

The Positive outlook on the A2 ratings of the DEPFA group reflect further
upward pressure on DEPFA's and DEPFA ACS's baa3 BCAs,
owing to potentially further improving capitalisation and reduced asset
risk as a result of the continued wind-down of DEPFA group's
assets.

ASSIGNMENT OF COUNTERPARTY RISK RATINGS

Moody's Counterparty Risk Ratings (CRR) are opinions of the ability of
entities to honor the uncollateralized portion of non-debt counterparty
financial liabilities (CRR liabilities) and also reflect the expected
financial losses in the event such liabilities are not honored.
CRR liabilities typically relate to transactions with unrelated parties.
Examples of CRR liabilities include the uncollateralized portion of payables
arising from derivatives transactions and the uncollateralized portion
of liabilities under sale and repurchase agreements. CRRs are not
applicable to funding commitments or other obligations associated with
covered bonds, letters of credit, guarantees, servicer
and trustee obligations, and other similar obligations that arise
from a bank performing its essential operating functions.

As for the other ratings of the DEPFA group, in assigning A2/P-1
CRRs to DEPFA and DEPFA ACS, Moody's starts with the banks'
baa3 Adjusted BCAs and applies the Basic LGF approach, which provides
one notch of rating uplift for CRR liabilities. Moody's also
assumes a Very High level of government support, which results in
three additional notches of expected loss mitigation.

WHAT COULD CHANGE THE RATINGS - UP / DOWN

Positive pressure on the banks' ratings could arise if fundamental
improvements warrant an upgrade of the banks' BCAs, and/or
if additional support measures lead Moody's to revise upwards its
assumptions for government support. If the group continues its
positive trend of deleveraging, reducing costs, containing
operating losses and effectively preserving capital, the baa3 BCAs
of DEPFA and DEPFA ACS could be upgraded. This would also lead
to higher long-term debt and deposit ratings, as reflected
in the positive outlook.

Moody's does not expect downward pressure on the banks' long-term
ratings as indicated by the positive outlook. However, the
banks' ratings could be downgraded if a fundamental and joint deterioration
of DEPFA's solvency and liquidity profile results in significant
pressure on the banks' BCAs, and/or if Moody's reduces
its government supports assumptions. The banks' BCAs could be downgraded
due to (i) a fundamental deterioration in asset quality; and/or (ii)
a material reduction in capitalisation levels because of special dividends
being paid to FMS-WM; and/or (iii) failure to contain operating
losses, especially if these losses reduce capital levels faster
than currently anticipated.

The principal methodology used in these ratings was Banks published in
June 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt,
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